UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1 TO FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended June 27, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____ to ______.
Commission file number 0-14742
CANDELA CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 04-2477008
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(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
530 Boston Post Road
Wayland, Massachusetts 01778
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (508) 358-7400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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(Title of Class)
Common Stock Purchase Warrants
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO ___
-
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
The aggregate market value of the Common Stock, $.01 par value, of the
registrant held by non-affiliates of the registrant as of October 20, 1998
(computed based on the closing price of $4.438 of such stock on The NASDAQ
National Market on October 20, 1998) was $10,765,856.
As of October 20, 1998, 5,481,606 shares of the registrant's Common Stock, $.01
par value, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
The undersigned registrant hereby amends the following items of its
Annual Report on Form 10-K as set forth on the pages attached hereto:
PART I
ITEM 3. LEGAL PROCEEDINGS
- ------ -----------------
The Company's Dynamic Cooling Device(TM) (DCD) is manufactured and sold
pursuant to a Technology License Agreement dated December 19, 1994, with the
Regents of the University of California (Regents). This License Agreement grants
the Company exclusive rights to dynamic cooling technology for use in
conjunction with a laser that the Company has a right to manufacture, sell, or
upgrade for use in dermatology and plastic surgery procedures that do not
involve the shrinkage or removal of collagen. On or about June 10, 1997, the
Regents sent to the Company a Notice of Partial Termination, alleging that the
Company had breached the due diligence requirements of the License Agreement and
purported to narrow the exclusive field of use granted to the Company. On or
about June 13, 1997, the Company commenced litigation in the Massachusetts
Superior Court against the Regents seeking a declaration that the Technology
License Agreement remained in full force and effect and asserting claims for
breach of the Technology License Agreement. The Regents removed the action to
the United States District Court for the District of Massachusetts. On or about
July 21, 1997, the Regents filed an Answer and Counterclaims against the Company
alleging that the Company breached and remains in breach of the Technology
License Agreement and sought a declaratory judgment that the Regents have the
right to terminate the Technology License Agreement. On August 5, 1997, the
Regents sent to the Company another Notice purporting to terminate the
Technology License Agreement. The Company then pursued its declaratory judgment
claim, and defended against the Regents' counterclaims. After fact discovery in
this matter was substantially complete, the parties commenced settlement
negotiations. On or about October 14, 1998, the parties concluded a settlement
of this matter. The settlement did not have any material adverse financial
impact on the Company. In accordance with the parties' settlement, the parties
amended their Technology License Agreement to provide the Company with the right
under the Regents' patent rights to make, use, sell, offer for sale, import and
practice the dynamic cooling technology in all fields of use and to make grant
sub-licenses, in accordance with certain requirements, for such technology.
Further, the Company was not required to make any financial payment in
connection with the settlement. In accordance with the parties' settlement, a
stipulation was filed with the Court dismissing the action with prejudice.
From time to time, the Company is a party to various legal proceedings
incidental to its business. The Company believes that none of such other
presently pending legal proceedings will have a material adverse effect upon its
financial position, results of operation, or liquidity.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION
---- --- --------
Gerard E. Puorro........................ 51 President, Chief
Executive Officer and
Director
Kenneth D. Roberts...................... 65 Chairman of the Board of
Directors
Theodore G. Johnson..................... 66 Director
Douglas W. Scott........................ 52 Director
Richard J. Cleveland, M.D............... 66 Director
Robert E. Dornbush...................... 51 Director
MR. PUORRO was appointed a Director of the Company in September 1991.
Mr. Puorro has been President and Chief Executive Officer of the Company since
April 1993. From April 1989 until April 1993, Mr. Puorro was Senior Vice
President and Chief Financial Officer of the Company. Mr. Puorro was elected
Treasurer in April 1991 and Chief Operating Officer in December 1992. Prior to
joining the Company and since 1982, he was Vice President and Controller at
Massachusetts Computer Corporation, a manufacturer of micro-supercomputers. Mr.
Puorro became acting Chief Executive Officer of Candela Skin Care Centers, Inc.
in June 1997.
MR. ROBERTS has been a Director of the Company since August 1989 and
Chairman of the Board of Directors since November 1991. From November 1992 to
June 1995, Mr. Roberts was employed on a part-time basis as Vice President and
Chief Financial Officer of Foster Miller, Inc., an engineering services company.
Since December 1988, he has been an independent management consultant. From July
1986 to December 1988, Mr. Roberts was Vice President, Treasurer and Chief
Financial Officer of Massachusetts Computer Corporation, a manufacturer of
micro-supercomputers. Prior to that time and for many years, he was Senior Vice
President and Treasurer of Dynatech Corporation, a provider of diversified high
technology products and services.
MR. JOHNSON has been a Director of the Company since February 1988.
From 1983 until 1991, he managed his own venture capital and consulting
business, Prelude Management, Inc. Since that time, he has been an active
venture investor and director of a number of companies. Prior to that and for
twenty-five years, he was a Vice President at Digital Equipment Company. Mr.
Johnson is currently a Director of Kronos, Inc., Gensym, Inc., and a number of
private companies including Enrollment Collaborative, Inc., a computer-based
college application service.
MR. SCOTT has been a Director of the Company since September 1991.
Since 1985, Mr. Scott has been a partner with Phildius, Kenyon & Scott, a health
care consulting and investment firm. Mr. Scott is currently President, Chief
Operating Officer, and a Director of Avitar, Inc., a publicly held health care
company. Mr. Scott also served as Chief Executive Officer of Avitar from
December 1989 through April 1991.
DR. CLEVELAND was appointed a Director of the Company in April 1994. He
has been Professor of Surgery at Tufts University School of Medicine since 1972.
In 1986, he was appointed the Andrews Professor of Surgery at the same
institution. From 1975 to 1993, Dr. Cleveland was Chairman of the Department of
Surgery and Surgeon-in-Chief at the New England Medical Center and a member of
the staff of several hospitals in the Boston area. He is presently
Secretary-Treasurer of the American Board of Thoracic Surgery and has held
numerous positions in a variety of other professional associations.
MR. DORNBUSH was appointed a Director of the Company in January 1995.
He has been a principal in Co-Development International, a health care
consulting firm, since 1992. In that capacity, he served as a materials
management consultant for Kaiser Permanente from 1994 through 1995. Prior to
that time, Mr. Dornbush was President of UNIT Consulting Group. From 1978
through 1991, Mr. Dornbush held the positions of President and Chief Executive
Officer at Itel Distribution Systems, Inc. and The Dornbush Group, Inc. Mr.
Dornbush also is
currently a partner in five real estate entities: Pratezk Partners, Double M
Investments, Dom Associates, Westside Development and Lewis, Wolcott and
Dornbush Real Estate, Inc.
Information regarding the Company's executive officers is contained in
Part I of the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission (the "SEC") on September 19, 1997.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and officers, and persons who
own more than 10% of a registered class of the Company's equity securities, to
file initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission (the "SEC"). Such persons are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Each of William B. Kelley, Vice President, North American and Latin
American Sales for the Company, Robert Wilber, Vice President - Worldwide
Service, Jay Caplan, Vice President, Operations and Mr. Scott failed to timely
file a Statement of Beneficial Ownership of Securities on Form 4 for a single
transaction. Each of Messrs. Cleveland, Dornbush, Roberts, Scott and Johnson
failed to timely file an Annual Statement of Beneficial Ownership of Securities
on Form 5 for two transactions. Each of Jay Caplan, Vice President, Operations
for the Company, James C. Hsia, Senior Vice President, Research for the Company,
Mr. Puorro and Robert Wilber, Vice President, Service for the Company, failed to
timely file an Annual Statement of Beneficial Ownership of Securities on Form 5
for a single transaction. The foregoing information is based solely on the
Company's review of the copies of such forms received by it or written
representations from certain reporting persons that no Forms 4 or 5 were
required to be filed.
ITEM 11. EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive a fee of $750
per meeting of the Board of Directors or committee meeting thereof if held
separately. Directors are also reimbursed for out-of-pocket expenses incurred in
connection with the performance of their duties as a director.
On May 10, 1990, the Board of Directors of the Company adopted the 1990
Non-Employee Director Plan, which was approved by the Company's shareholders on
November 13, 1990. The 1990 Non-Employee Director Plan provides for the issuance
of options for the purchase of up to 60,000 shares of the Company's Common
Stock. Under this plan, each member of the Company's Board of Directors who is
neither an employee nor officer of the Company receives a one-time grant of an
option to purchase 10,000 shares of Common Stock at an exercise price equal to
the fair market value on the date of grant. The options generally become
exercisable in equal amounts over a period of four years from the date of grant,
expire seven years after the date of grant and are nontransferable. Including
cancellations, options for the purchase of 66,500 shares have been granted at a
range of exercise prices from $3.25 to $14.50 per share. Upon shareholder
approval of the 1993 Non-Employee Director Stock Option Plan, the Board of
Directors terminated the granting of options under the 1990 Non-Employee
Director Stock Option Plan.
On June 2, 1993, the Board of Directors of the Company adopted the 1993
Non-Employee Director Stock Option Plan, which was approved by the Company's
shareholders on November 18, 1993. The 1993 Non-Employee Director Plan provides
for the issuance of options for the purchase of up to 80,000 shares of the
Company's Common Stock. Under this Plan, each member of the Company's Board of
Directors who is neither an employee nor an officer of the Company receives a
onetime grant of an option to purchase 10,000 shares of Common Stock at an
exercise price equal to the fair market value on the date of grant. The options
generally become exercisable in equal amounts over a period of two years from
the date of grant, expire ten years after the date of grant and are
nontransferable. To date, options for the purchase of 50,000 shares have been
granted at exercise prices ranging from $1.625 to $3.25 per share.
On December 24, 1996, Dr. Cleveland, a director of the Company, was
granted non-statutory options to purchase 20,000 shares of the common stock of
Candela Skin Care Centers, Inc., a subsidiary of the Company, at an exercise
price of $1.00. These non-statutory options were granted pursuant to the terms
of the Candela Skin Care Centers, Inc. 1996 Incentive and Non-Statutory Stock
Option Plan, have a term of 10 years from the date of grant and become
exercisable over a four-year period. On August 21, 1997, options granted under
the CSCC Plan were converted to options in Candela Corporation at the rate of
0.21053 Candela Corporation options for each CSCC option. Mr. Cleveland realized
options for 4,211 Candela Corporation as a result of this conversion.
On August 14, 1997, Non-Qualified Options to purchase 10,000 shares of
the Company's Common Stock were granted to each of Theodore G. Johnson, Kenneth
D. Roberts, Richard J. Cleveland, Douglas W. Scott and Robert E. Dornbush, at an
exercise price of $4.688 per share, such price being the market price of the
Common Stock on the date of the grant. These Non-Qualified Options were granted
pursuant to the Company's 1989 Stock Plan (the "Plan") and vest in equal 50%
amounts on each of the first and second anniversaries of the date of the grant,
provided that each such optionee continues to serve as a director of the
Corporation on such anniversary date.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
compensation paid or accrued by the Company for services rendered to the
Company, in all capacities, for the year ended June 27, 1998 by its Chief
Executive Officer (the "CEO") and the four other most highly paid executive
officers of the Company, in each case whose total salary and bonus exceeded
$100,000 during the year ended June 27, 1998 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(1) LONG-TERM
COMPENSATION
----------------------------------------------------------
NAME AND PRINCIPAL FISCAL OTHER ANNUAL AWARDS(2) ALL OTHER
POSITION YEAR SALARY($) COMPENSATION($) OPTIONS/SARS(#) COMPENSATION($)
- --------------------------------------------------------------------------------------------------------------------------------
Gerard E. Puorro................ 1998 237,500 114,885(3) 10,527(4) 4,972(5)
Chief Executive Officer, 1997 209,792 15,000(3) 100,000(4) 3,046(5)
President and Director 1996 207,615 15,000(3) 50,000(4) 2,376(5)
James C. Hsia, Ph.D............. 1998 155,000 105,188(6) 33,000(7) 2,942(8)
Senior Vice President, 1997 141,686 -- 20,000(7) 2,935(8)
Research 1996 131,019 -- 40,000(7) 2,470(8)
William B. Kelley............... 1998 163,942 65,188(9) -- 2,443(10)
Vice President, North 1997 156,988 -- 25,000 2,401(10)
American Sales and Service 1996 135,520 -- -- 1,934(10)
Jay D. Caplan................... 1998 130,000 54,674(9) 5,000 2,100(12)
Vice President, Operations 1997 120,000 -- 20,000(11) 1,920(12)
1996 102,500 -- 12,525(11) --
Robert Wilber................... 1998 108,844 46,772(9) 15,000 8,009(13)
Vice President - Worldwide 1997 93,301 5,000 -- 12,433(13)
Service 1996 86,554 -- 3,250 8,956(13)
________________
(1) Excludes perquisites and other personal benefits, the aggregate annual
amount of which for each officer was less than the lesser of $50,000 or 10%
of the total salary and bonus reported for the named executive officer.
(2) The Company did not grant any restricted stock awards or stock appreciation
rights ("SARs") or make any long-term incentive plan pay-outs during the
fiscal years ended June 27, 1998, June 28, 1997 or June 29, 1996.
(3) Fiscal years 1998, 1997 and 1996, each includes $15,000 for debt
forgiveness. Fiscal 1998 also includes incentive bonus of $99,885.
(4) Options granted in fiscal 1996 for the purchase of 50,000 shares in Candela
Skin Care Centers, Inc., a subsidiary of the Company, were converted to
10,527 during the fiscal year ended June 27, 1998. All rights and interests
in options granted in fiscal 1997 to purchase 100,000 shares at $7.50 per
share were forfeited during fiscal 1998.
(5) For fiscal 1998, includes $2,375 in matching contributions by the Company
pursuant to the Company's 401(k) Plan, $766 in life insurance premiums paid
by the Company for the benefit of Mr. Puorro, and $1,831 for a Company
provided automobile. For fiscal 1997, includes $2,320 in matching
contributions by the Company pursuant to the Company's 401(k) Plan and $726
in life insurance premiums paid by the Company for the benefit of Mr.
Puorro. For fiscal 1996, includes $1,717 in matching contributions by the
Company pursuant to the Company's 401(k) Plan and $659 in life insurance
premiums paid by the Company for the benefit of Mr. Puorro.
(6) Includes $65,188 incentive bonus approved by Board of Directors, based on
Company results for second half of Fiscal 1998. Additionally, includes an
Inventor's Bonus of $40,000 which was awarded to Dr. Hsia in fiscal 1998
for recognition of his involvement with the GentleLase(TM).
(7) During fiscal 1998 options granted in fiscal 1991 to purchase 8,000 shares
of stock at $8.75 and options granted in fiscal 1992 to purchase 25,000
shares of stock were repriced at $3.25 per share. All rights and interests
in options granted in fiscal 1996 to purchase 15,000 shares at $9.875 per
share and options granted in fiscal 1997 to purchase 20,000 shares at $7.50
were forfeited during fiscal 1998.
(8) For fiscal 1998, includes $2,144 in matching contributions by the Company
pursuant to the Company's 401(k) Plan and $798 in life insurance premiums
paid by the Company for the benefit of Dr. Hsia. For fiscal 1997, includes
$2,175 in matching contributions by the Company pursuant to the Company's
401(k) Plan and $760 in life insurance premiums paid by the Company for the
benefit of Dr. Hsia. For fiscal 1996, includes $1,773 in matching
contributions by the Company pursuant to the Company's 401(k) Plan and $697
in life insurance premiums paid by the Company for the benefit of Dr. Hsia.
(9) Incentive bonus approved by Board of Directors, based on Company results
for second half of Fiscal 1998.
(10) For fiscal 1998, includes $2,325 in matching contributions by the Company
pursuant to the Company's 401(k) Plan and $118 in life insurance premiums
paid by the Company for the benefit of Mr. Kelley. For fiscal 1997,
includes $2,291 in matching contributions by the Company pursuant to the
Company's 401(k) Plan and $110 in life insurance premiums paid by the
Company for the benefit of Mr. Kelley. For fiscal 1996, includes $1,837 in
matching contributions by the Company pursuant to the Company's 401(k) Plan
and $97 in life insurance premiums paid by the Company for the benefit of
Mr. Kelley.
(11) All rights and interests in options granted in fiscal 1996 to purchase
10,000 shares at $9.875 per share and options granted in fiscal 1997 to
purchase 20,000 shares at $7.50 were forfeited during fiscal 1998.
(12) For fiscal 1998, includes $1,950 in matching contributions by the Company
pursuant to the Company's 401(k) Plan and $150 in life insurance premiums
paid by the Company for the benefit of Mr. Caplan. For fiscal 1997,
includes $1,771 in matching contributions by the Company pursuant to the
Company's 401(k) Plan and $149 in life insurance premiums paid by the
Company for the benefit of Mr. Caplan.
(13) For fiscal 1998, includes $1,533 in matching contributions by the Company
pursuant to the Company's 401(k) Plan and $6,476 in commissions paid on
service contracts sold to customers. For fiscal 1997, includes $1,639 in
matching contributions by the Company pursuant to the Company's 401(k) Plan
and $10,794 in commissions paid on service contracts sold to customers. For
fiscal 1996, includes $1,406 in matching contributions by the Company
pursuant to the Company's 401(k) Plan and $7,550 in commissions paid on
service contracts sold to customers.
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth grants of stock options pursuant to the
Company's 1989 Stock Plan during the fiscal year ended June 27, 1998 to the
Named Executive Officers listed in the Summary Compensation Table above.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
INDIVIDUAL GRANTS STOCK PRICE
APPRECIATION FOR
OPTIONS(1)
--------------------------------------------------------- --------------------------
PERCENT OF
NAME TOTAL
OPTIONS/
GRANTED TO EXERCISE
OPTION EMPLOYEES OF BASE EXPIR-
GRANTED IN FISCAL PRICE ATION
(#) YEAR ($/SHARE) DATE 5% 10%
- ------------------------- ---------------------------------------------------------- --------------------------
Gerard E. Puorro........ 10,527(2) 5.43% 4.75 8/21/07 31,447 79,692
James C. Hsia, Ph.D..... 33,000(3) 17.03% 3.25 4/24/08 67,449 170,929
William B. Kelley....... -- 0% -- -- -- --
Jay D. Caplan........... 5,000 2.58% 4.688 8/14/07 14,741 37,357
Robert Wilber........... 15,000 7.74% 4.688 8/14/07 44,224 112,072
- ----------------
(1) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation (5% and 10%)
on the Company's Common Stock, as the case may be, over the term of the
options. These numbers are calculated based on rules promulgated by the
Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price growth. Actual gains, if any, on stock
option exercises and Common Stock holdings are dependent on the timing of
such exercise and the future performance of the Company's Common Stock.
There can be no assurance that the rates of appreciation assumed in this
table can be achieved or that the amounts reflected will be received by
the individuals.
(2) These options were granted in fiscal 1996 for the purchase of 50,000
shares in Candela Skin Care Centers, Inc., a subsidiary of the Company,
and converted to 10,527 options in the Company on August 21, 1997. These
options have a term of ten years from the date of conversion, become
exercisable one year from the date of conversion, and qualify as
incentive stock options under Section 422 of the Internal Revenue Code.
(3) Options for 8,000 shares, granted in fiscal 1991 at $8.75 per share were
repriced on April 27, 1998, have a term of 10 years from the date of
repricing, and are 100% vested at the date of repricing. Options for
25,000 shares, granted in fiscal 1992 at $8.125 per share were repriced
on April 27, 1998, have a term of 10 years from the date of repricing,
and are 100% vested at the date of repricing.
OPTION EXERCISES AND FISCAL YEAR END VALUES
The following table sets forth information with respect to options to
purchase (1) the Company's Common Stock granted under the 1987 Stock Option Plan
and 1989 Stock Plan, and (2) shares of the Company's subsidiary, Candela Skin
Care Centers, Inc. including (i) the number of shares purchased upon exercise of
options in the most recent fiscal year, (ii) the net value realized upon such
exercise, (iii) the number of unexercised options outstanding at June 27, 1998,
and (iv) the value of such unexercised options at June 27, 1998:
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
JUNE 27, 1998 OPTION VALUES
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT JUNE 27, 1998 (#) AT JUNE 27, 1998 ($)(2)
-----------------------------------------------------------------
SHARES VALUE
ACQUIRED REALIZED EXERCIS- UNEXERCIS- EXERCIS- UNEXERCIS-
NAME ON EXERCISE ($)(1) ABLE ABLE ABLE ABLE
(#)
- ---------------------------------------------------------------------------------------------------------------------------
Gerard E. Puorro...... -- -- 155,000(3) 35,527(3) 4,725 1,575
James C. Hsia, Ph.D... -- -- 76,796(4) --(4) -- --
William B. Kelley..... -- -- 60,464 23,750 850 315
Jay Caplan............ -- -- 4,525(5) 5,000(5) -- --
Robert Wilber......... -- -- 8,750 17,500 2,032 2,032
____________________
(1) Named Executive Officers will receive cash only if and when they sell the
securities issued upon exercise of the options and the amount of cash
received by such individuals is dependent on the value of such securities
at the time of such sale, if any.
(2) Value is based on the difference between option grant price and the fair
market value at 1998 fiscal year end ($2.813 per share as quoted on the
NASDAQ Stock Market at the close of trading on June 26, 1998) multiplied by
the number of shares underlying the option.
(3) All rights and interests in options granted in fiscal 1997 to purchase
100,000 shares at $7.50 per share were forfeited during fiscal 1998
(4) All rights and interests in options granted in fiscal 1996 to purchase
15,000 shares at $9.875 per share and options granted in fiscal 1997 to
purchase 20,000 shares at $7.50 were forfeited during fiscal 1998.
(5) All rights and interests in options granted in fiscal 1996 to purchase
10,000 shares at $9.875 per share and options granted in fiscal 1997 to
purchase 20,000 shares at $7.50 were forfeited during fiscal 1998.
OPTION REPRICING
The following table sets forth information concerning the repricing of stock
options held by certain executive officers of the Company since June 27,
1988, the date of the Company's initial public offering, including (i) the
date of repricing; (ii) the number of shares subject to repricing; (iii) the
market price at the time of repricing; (iv) the exercise price prior to
repricing; (v) the new exercise price; and (vi) the original option term
remaining at the date of repricing.
TEN YEAR OPTION REPRICINGS
No. of Length of
Securities Original term
Underlying Market Price Exercise Remaining
Options/ of Stock at Price at At date of
SAR's Time of Time of New Repricing
Date of Repriced or Repricing or Repricing Exercise of
Name Repricing Amended (#) Amendment $ Amendment $ Price Amendment
- ------------------- --------- ----------- ----------- ----------- ----- ---------
Gerard E. Puorro 7/21/95 5,000 3.1875 5.625 3.1875 3.7 years
7/21/95 25,000 3.1875 8.750 3.1875 5.9 years
James C. Hsia,PhD 4/27/98 8,000 3.25 8.75 3.25 3.0 years
4/27/98 25,000 3.25 8.125 3.25 3.75 years
William B. Kelley 8/10/89 1,200 7.375 9.625 7.37 9 years
7/21/95 7,000 3.1875 8.50 3.1875 6 years
7/21/95 6,000 3.1875 8.125 3.1875 6.5 years
7/21/95 1,514 3.1875 5.50 3.1875 8.4 years
Robert Wilber 7/21/95 750 3.1875 6.82 3.1875 4.25 years
7/21/95 1,500 3.1875 8.50 3.1875 6.1 years
7/21/95 1,000 3.1875 8.125 3.1875 6.5 years
Jay Caplan 7/21/95 525 3.1875 5.75 3.1875 3.9 years
7/21/95 2,000 3.1875 8.50 3.1875 6 years
COMPENSATION COMMITTEE REPORT ON OPTION REPRICING
On April 27, 1998, the Stock Option and Compensation Committee of the
Board of Directors (the "Compensation Committee") and the Board approved a
reduction in exercise price of certain outstanding stock options held by James
C. Hsia, Ph.D, Senior Vice President of the Company to $3.25 per share, the fair
market value of the Company's Common Stock on April 27, 1998. These options were
granted in fiscal 1991 and fiscal 1992 at exercise prices ranging from $8.125 to
$8.75 per share. Terms and conditions of the repriced options reflect full
vesting at the time of repricing, with a term of 10 years.
As set forth in the Company's Stock Option Plans, stock options are
intended to provide incentives to the Company's officers and employees. The
Compensation Committee believes that such equity incentives are a significant
factor in the Company's ability to attract, retain and motivate key employees
who are critical to the Company's long-term success. The Compensation Committee
believed that, at their original exercise prices, the disparity between the
exercise price of these options and recent market prices for the Company's
Common Stock did not provide meaningful incentives to the employees holding
these options. The Compensation Committee approved the repricing of these
options as a means of ensuring that optionees will continue to have meaningful
equity incentives to work
toward the success of the Company. The adjustment was deemed by the Compensation
Committee to be in the best interest of the Company and its shareholders.
DOUGLAS W. SCOTT
RICHARD J. CLEVELAND, M.D.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee, which consisted of Mr. Scott and Dr. Cleveland during
fiscal 1998. Both members of the Compensation Committee are non-employee
directors. Pursuant to the authority delegated by the Board of Directors the
Compensation Committee each year sets the compensation of the Chief Executive
Officer and reviews and approves the compensation of all other senior officers,
including approval of annual salaries and bonuses as well as the grant of stock
options to officers and employees.
Compensation Philosophy
The goal of the Company is to attract and retain qualified executives
in a competitive industry. To achieve this goal, the Compensation Committee
applies the philosophy that compensation of executive officers, specifically
including that of the Chief Executive Officer and President, should be linked to
revenue growth, operating results and earnings per share performance.
Under the supervision of the Compensation Committee, the Company has
developed and implemented compensation policies. The Compensation Committee's
executive compensation policies are designed to (i) enhance profitability of the
Company and shareholder value, (ii) integrate compensation with the Company's
annual and long-term performance goals, (iii) reward corporate performance, (iv)
recognize individual initiative, achievement and hard work, and (v) assist the
Company in attracting and retaining qualified executive officers. Currently,
compensation under the executive compensation program is comprised of cash
compensation in the form of annual base salary, bonus, and long-term incentive
compensation in the form of stock options.
Base Salary
In setting cash compensation for the Chief Executive Officer and
reviewing and approving the cash compensation for all other officers, the
Compensation Committee reviews salaries annually. The Compensation Committee's
policy is to fix base salaries at levels comparable to the amounts paid to
senior executives with comparable qualifications, experience and
responsibilities at other companies of similar size and engaged in a similar
business to that of the Company. In addition, the base salaries take into
account the Company's relative performance as compared to comparable companies.
The salary compensation for the executive officers is based upon their
qualifications, experience and responsibilities, as well as the attainment of
planned objectives. The Chief Executive Officer and President makes
recommendations to the Compensation Committee regarding the planned objectives
and executive compensation levels. The overall plans and operating performance
levels upon which management compensation is based are approved by the
Compensation Committee on an annual basis. During fiscal 1998, the Chief
Executive Officer and President made recommendations for salary increases for
the executive group, and the Compensation Committee granted an increase of 5% to
one executive officer.
Bonus Compensation
In addition to salary compensation, on January 19, 1998, the
Compensation Committee established a Management Incentive Plan whereby senior
executives recommended by the Chief Executive Officer and approved for inclusion
in the Plan by the Compensation Committee receive bonus compensation based on a
percentage of base salary. Bonuses
paid under this Plan were a percentage of base salary for the second half of
fiscal 1998 and were based on pre-tax profits, after bonus, for the third and
fourth quarters and for the device business only. Bonuses paid were 42% of
applicable annual salaries and totaled $425,699 in the aggregate.
Stock Options
The Compensation Committee relies on incentive compensation in the form
of stock options to retain and motivate executive officers. Incentive
compensation in the form of stock options is designed to provide long-term
incentives to executive officers and other employees, to encourage the executive
officers and other employees to remain with the Company and to enable them to
develop and maintain a stock ownership position in the Company's Common Stock.
The Company's 1987 Stock Option Plan and 1989 Stock Plan, administered by the
Compensation Committee, have been used for the granting of stock options. The
Board of Directors has terminated the granting of options under the 1987 Stock
Option Plan.
The 1989 Stock Plan permits the Compensation Committee to grant stock
options to eligible employees, including executive officers. Options generally
become exercisable based upon a vesting schedule tied to years of future service
to the Company. The value realizable from exercisable options is dependent upon
the extent to which the Company's performance is reflected in the market price
of the Company's Common Stock at any particular point in time. Equity
compensation in the form of stock options is designed to provide long-term
incentives to executive officers and other employees. The Compensation Committee
has granted options in order to motivate these employees to maximize shareholder
value. Generally, options granted to officers and employees vest over 2 or 4
years and expire after a 10-year period. The Compensation Committee has a
general practice of awarding stock options at not less than the fair market
value at the date of grant. As a result of this policy, executives and other
employees are rewarded economically only to the extent that the shareholders
also benefit through appreciation in the market.
Options granted to employees are based on such factors as individual
initiative, achievement and performance. In making grants to executives, the
Compensation Committee evaluates each officer's total equity compensation
package. The Compensation Committee generally reviews the option holdings of
each of the executive officers, including vesting and exercise price and the
then current value of such unvested options. The Compensation Committee
considers equity compensation to be an integral part of a competitive executive
compensation package and an important mechanism to align the interests of
management with those of the Company's shareholders. In fiscal 1998, options to
purchase shares of Common Stock were granted to Mr. Broyer, Mr. Caplan, Mr.
Hsia, Mr. Puorro, and Mr. Wilber.
Mr. Puorro's Compensation
The cash compensation program for the Chief Executive Officer and the
President of the Company is designed to reward performance that enhances
shareholder value. The compensation package is comprised of base pay and stock
options, which is affected by the Company's revenue growth, market share growth,
profitability, and growth in earnings per share. In fiscal 1998, Mr. Puorro's
cash compensation remained at $237,500 per year. Additionally, outstanding
options to purchase 50,000 shares in Candela Skin Care Centers, Inc., a
subsidiary of the Company, were exchanged for options to purchase 10,527 shares
of Common Stock of the Company. The Compensation Committee believes that Mr.
Puorro's compensation has been, and is now, comparable to the salary of other
Chief Executive Officers in other medical equipment companies, considering the
size and rate of profitability of those companies.
The Compensation Committee is satisfied that the executive officers of
the Company are dedicated to achieving significant improvements in the long-term
financial performance of the Company and that the compensation policies and
programs implemented and administered have contributed and will continue to
contribute toward achieving this goal.
This report has been submitted by the members of the Stock Option and
Compensation Committee:
DOUGLAS W. SCOTT
RICHARD J. CLEVELAND, M.D.
STOCK PERFORMANCE GRAPH
The following graph illustrates a five year comparison of cumulative
total shareholder return among the Company, the NASDAQ National Market Index and
the Company's "Industry Index." The Company selected an index of companies in
the electro-medical equipment industry as its industry group. Accordingly, the
Industry Index reflects the performance of all companies that are included in
the electro-medical equipment industry with 3845 as their Primary Standard
Industrial Classification Code Number. The comparison assumes $100 was invested
on June 30, 1992 (the date of the beginning of the Company's fifth preceding
fiscal year) in the Company's Common Stock and in each of the foregoing indices
and assumes reinvestment of dividends, if any.
- ------------------------------------------------FISCAL YEAR ENDING----------------------------------------
COMPANY/INDEX/MARKET 7/02/1993 7/01/1994 6/30/1995 6/28/1996 6/27/1997 6/26/1998
Candela Corp 100.00 104.17 66.67 279.17 208.33 93.75
Electromedical Equipment 100.00 103.74 167.66 227.94 269.86 352.36
NASDAQ Market Index 100.00 109.66 128.61 161.89 195.02 258.52
EMPLOYMENT CONTRACTS
The Company has a severance agreement with each of Messrs. Puorro,
Hsia, Broyer, Kelley and Caplan. Under the Company's agreements the Company has
agreed to continue payment of their respective base annual salary over 12 months
in the event that their services for the Company are terminated for any reason
except resignation. Under the Company's agreement with Mr. Puorro, he is
entitled to receive 18 months of severance in the event that there is a change
in control of the Company as defined by the agreement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of October 20, 1997 by (i)
each person known to the Company who beneficially owns 5% or more of the
outstanding shares of its Common Stock, (ii) each director or nominee to become
a director of the Company, (iii) each executive officer identified in the
Summary Compensation Table and (iv) all directors and executive officers of the
Company as a group:
AMOUNT OF BENEFICIAL OWNERSHIP(1)
---------------------------------
NUMBER AND ADDRESS OF NUMBER OF SHARES PERCENT OF SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED
- ---------------------------------------------------------------------------------------------------------------------
Gerard E. Puorro( 2)...................... 193,952 3.4%
Theodore G. Johnson(3).................... 85,849 1.6%
Kenneth D. Roberts(4)..................... 51,500 *
Douglas W. Scott(5)....................... 28,750 *
Richard J. Cleveland, M.D.(6)............. 32,424 *
Robert E. Dornbush(7)..................... 319,835 5.8%
James C. Hsia(8).......................... 104,672 1.9%
William B. Kelley(9)...................... 69,525 1.3%
Singatronics Asset Holdings Private
Limited(10)............................. 831,004 15.2%
506 Chai Chee Lane
Singapore 469026
William D. Witter, Inc.(11)............... 1,298,733 23.7%
153 East 53rd Street
New York, NY 10022
All Directors and Executive 926,034 16.7%
Officers as a Group (14 Persons)(12)....
- --------------------
* Represents less than 1% of the Company's outstanding Common Stock.
(1) Except as otherwise indicated, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
beneficially owned by them. Pursuant to the rules of the Securities and
Exchange Commission the number of shares of Common Stock deemed outstanding
includes, for each person or group referred to in the table, shares
issuable pursuant to options held by the respective person or group which
may be exercised within 60 days after October 19, 1998.
(2) Includes 190,527 shares issuable pursuant to stock options exercisable
within the 60 day period following October 19, 1998.
(3) Includes 28,000 shares issuable pursuant to stock options exercisable
within the 60 day period following October 19, 1998.
(4) Includes 37,500 shares issuable pursuant to stock options exercisable
within the 60 day period following October 19, 1998. Excludes 3,000 shares
held by a trust for the benefit of one of Mr. Roberts' children as to which
Mr. Roberts disclaims beneficial ownership.
(5) Includes 22,500 shares issuable pursuant to stock options exercisable
within the 60 day period following October 19, 1998.
(6) Includes 25,424 shares issuable pursuant to stock options exercisable
within the 60 day period following October 19, 1998.
(7) Includes 22,500 shares issuable pursuant to stock options exercisable
within the 60 day period following October 19, 1998 and warrants to
purchase 2,000 shares of Common Stock. Excludes 119,885 shares held by
Kenan Greg Loomis which, by virtue of their expectation that they are
likely to act in concert with respect to future transactions in the
Company's securities, each of Messrs. Dornbush and Loomis may be deemed to
own beneficially. However, each of Messrs. Dornbush and Loomis disclaims
voting power and investment power over the securities of the Company owned
by the other. Information based on Amendment No. 2 to Schedule 13D, dated
September 9, 1992, and Amendment No. 6 to Schedule 13D, dated December 22,
1994 filed with the Securities and Exchange Commission.
(8) Includes 73,000 shares issuable pursuant to stock options exercisable
within the 60 day period following October 19, 1998.
(9) Includes 69,000 shares issuable pursuant to stock options exercisable
within the 60 day period following October 19, 1998.
(10) Includes warrants to purchase 39,142 shares of Common Stock. Information
based on Amendment No. 3 to Schedule 13D, dated June 9, 1992 filed with the
Securities and Exchange Commission.
(11) Information based on Amendment No. 2 to Schedule 13D which was filed with
the Securities and Exchange Commission on January 30, 1998.
(12) Includes 505,726 shares subject to stock options exercisable within the 60
day period following October 19, 1998. Also includes warrants to purchase
2,000 shares of Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------- ---------------------------------------------------------------
(a) The following items are filed as part of this report:
(3) Exhibits: Except as otherwise noted, the following documents are
--------
incorporated by reference from the Company's Registration Statement on Form
S-3 (File Number 33-24565):
3.1 Certificate of Incorporation, as amended
3.2 <FN9> By-laws of the Company, as amended and restated
3.3 <FN1> Agreement of Merger between Candela Corporation,
Inc., a Massachusetts corporation, and Candela
Laser Corporation, a Delaware corporation
4.1 <FN6> Form of Rights Agreement dated as of September 4,
1992 between the Company and The First National
Bank of Boston, as Rights Agent, which includes as
Exhibit A the Form of Rights Certificate, and as
Exhibit B the Summary of Rights to Rights to
Purchase Common Stock.
4.2 <FN11> Certificate of Amendment, dated as of March 25,
1996, by the Company.
4.3 <FN11> First Amendment to Rights Agreement, dated as of
March 25, 1996, between the Company and The First
National Bank of Boston.
4.4 + Form of Certificate of Amendment.
4.5 + Form of Second Amendment to the Rights Agreement
between the Company and Bank Boston, N.A., as
Rights Agent with Exhibits A and B attached
thereto, as approved by the Board of Directors of
the Company on September 30, 1998.
10.1 <FN1> 1985 Incentive Stock Option Plan
10.2 1987 Stock Option Plan
10.2.1 <FN2> 1989 Stock Plan
10.2.2 <FN3> 1990 Employee Stock Purchase Plan
10.2.3 <FN3> 1990 Non-Employee Director Stock Option Plan
10.2.4 <FN7> 1993 Non-Employee Director Stock Option Plan
10.3 <FN7> Lease for premises at 526 Boston Post Road,
Wayland, Massachusetts
10.4 <FN7> Lease for premises at 530 Boston Post Road,
Wayland, Massachusetts
10.5 Patent License Agreement between the Company and
Patlex Corporation effective as of July 1, 1988
10.6 <FN4> License Agreement among the Company, Technomed
International, Inc. and Technomed International
S.A. dated as of December 20, 1990
10.7 <FN5> License Agreement between the Company and Pillco
Limited Partnership effective as of October 1, 1991
10.8 <FN8> Distribution Agreement between the Company and
Cryogenic Technology Limited, dated October 15,
1993
10.9 <FN10> Asset Purchase Agreement between the Company and
Derma-Laser, Limited and Derma-Lase, Inc. dated
June 23, 1994.
10.10 + Note and Warrant Purchase Agreement, dated as
October 15, 1998 between the Company, Massachusetts
Capital Resource Company, William D. Witter and
Michael D. Witter.
10.10.1 + Form of Note delivered by the Company in the
aggregate principal amount of $3,700,000 to
Massachusetts Capital Resource Company, William D.
Witter and Michael D. Witter.
10.10.2 + Form of Common Stock Purchase Warrant to purchase
an aggregate of 370,000 shares of the Company's
Common Stock delivered to Massachusetts Capital
Resource Company, William D. Witter and Michael D.
Witter.
21 * Subsidiaries of the Company
23 * Consent of PricewaterhouseCoopers LLP (Independent
Accountants)
27 * Financial Data Schedule
<FN1> Previously filed as an exhibit to Registration
Statement No. 33-54448B and incorporated herein by
reference.
<FN2> Previously filed as an exhibit to the Company's
Amended and
Restated Annual Report on Form 10-K for
the fiscal year ended June 30, 1988, and
incorporated herein by reference.
<FN3> Previously filed as an exhibit to the Company's
Annual Report on Form 10-K for the fiscal year
ended June 30, 1990, and incorporated herein by
reference.
<FN4> Previously filed as an exhibit to Form 10-Q for the
quarter ended December 29, 1990, and incorporated
herein by reference.
<FN5> Previously filed as an exhibit to Form 10-Q for the
quarter ended September 28, 1991, and incorporated
herein by reference.
<FN6> Previously filed as an exhibit to Form 8-K, dated
September 8, 1992, and incorporated herein by
reference.
<FN7> Previously filed as an exhibit to the Company's
Annual Report on Form 10-K for the fiscal year
ended July 3, 1993, and incorporated herein by
reference.
<FN8> Previously filed as an exhibit to Form 10-Q for the
quarter ended January 1, 1994, and incorporated
herein by reference.
<FN9> Previously filed as an exhibit to Form 10-Q for the
quarter ended April 2, 1994, and incorporated
herein by reference.
<FN10> Previously filed as an exhibit to the Company's
Annual Report on Form 10-K for the fiscal year
ended July 2, 1994, and incorporated herein by
reference.
<FN11> Previously filed as an Exhibit to Form 8-K filed
March 25, 1996, and incorporated by reference
herein.
* Filed with Form 10-K on September 25, 1998.
+ Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, this 23rd day of
October, 1998.
CANDELA CORPORATION
By: /s/ Gerard E. Puorro
----------------------------
Gerard E. Puorro
President and Chief Executive Officer